Slowdown expected in spending

A slowing housing market, rising energy costs and higher interest rates will contribute to a slowdown in consumer spending in 2006, a retail trade group predicted.

Retail industry sales - which exclude cars, gas stations and restaurants - are expected to rise a modest 4.7 percent this year, according to the National Retail Federation. Sales rose 6.1 percent in 2005.

"The housing market is topping out and the savings rate is negative right now, so there aren't a lot of places for consumers to find extra spending money," said Rosalind Wells, chief economist at NRF.

Instead, Americans will "have to rely on income, and that hasn't been growing strongly as of late," she said.

In 2005, wages failed to keep up with inflation, meaning consumers actually had less purchasing power based on their incomes.

Strong job growth could help mitigate the slowdown in consumer spending.

All in all, 2006 may be the year when consumers must come to terms with the record levels of debt they have accrued in recent years, economists said. Americans have used home-equity loans, escalating credit card balances and other forms of debt to finance a yearslong shopping spree.

On a national level, NRF forecast that slower spending in 2006 is expected to contribute to a generally weaker U.S. economy, with gross domestic product expected to grow 3.3 percent, below the 3.8 percent growth experienced in 2005.

NRF and other business and economic forecasters say that capital investment - the real estate, equipment, computers and other investments made by corporations - is needed to make up for diminished consumer spending.